A nudge buried in credit card regulations

Jeff Sovern, of Public Citizen’s Consumer Law and Policy blog smartly picks up on a nudge in FDIC rules on credit card standards. Buried within Regulation Z is a requirement that the late payment warning must be located adjacent to the payment’s due date. The warning explicitly states what many people willfully choose to ignore: Failure to pay on time will result in penalties! (A mock credit card statement showing how this will look is here.) Placing this warning close to the payment amount “appears likely to increase its effectiveness,” without ordering smart consumer credit choices. Sovern continues:

I gather that this nudge, together with another, the nearby “Minimum Payment Warning,” which gives consumers information about how long it will take to pay off balances if they make only the minimum payments, are products of the 2005 bankruptcy legislation.

Hopefully, there will be a good academic paper on this subject soon. For more on the reasons behind the 2005 legislation, you can read Federal Reserve Baord Governor and subprime soothsayer Edward Gramlich’s congressional testimony. The imprints of behavioralism are all over it. The key passage:

The question is…how might the Board revise its rules under (the Truth in Lending Act (TILA)) in a way that will enable consumers to more effectively use disclosures about the key financial elements of a particular credit card over the life of the account? Simplifying the content of disclosures may be one way; finding ways to enhance consumers’ ability to notice and understand disclosures may be another. Reviewing the adequacy of TILA’s substantive protections is a third, and the ANPR asks questions about each of these areas. As the Regulation Z review proceeds, the Board will be grappling with the challenge of issuing clear and simple rules for creditors that both provide consumers with key information about complicated products (while avoiding so-called “information overload”) and provide consumers adequate substantive protections, consistent with TILA.

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This entry was posted on January 16, 2009 at 3:36 am and is filed under Blog posts. You can follow any responses to this entry through the RSS 2.0 feed.
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Interesting points. I think such measures as putting the minimum repayments near the due date, might well help in the short term, but as with the phenomenon of “advert blindness” I think people will very soon get used to it and ignore it as effectively as they ignore most everything else. If they wanted to know, they’d look, and making it more obvious isn’t going to make them WANT to know any more than they do currently!